US SECURITIES LITIGATION AND ENFORCEMENT

CD: Could you outline some of the key trends you are seeing in securities litigation and enforcement? Has the volume of class actions in this area increased in recent years?

Butler: One important new development is the announcement in June 2013 that the SEC intends to seek admissions of wrongdoing from more defendants as a condition of settlement in fraud actions. While the consequences of this policy shift remain to be seen, defendants may increasingly choose to go to trial in such cases rather than accept settlements requiring admissions of guilt. Another development is that the SEC appears to be shifting its resources to focus on insider trading and accounting-related enforcement actions. Along these lines, the SEC announced in July that it has formed a Financial Reporting and Audit Task Force, underscoring a new emphasis on accounting-related violations. We have not seen a significant increase or decrease in private securities class actions.

Tuttle: The most noticeable trend that has emerged following the credit crisis is the extent to which private securities litigation claims seem to be aligned with the government enforcement priorities or significant enforcement matters. Although a significant cause of that alignment certainly stems from the fact that the issues – the sale of residential mortgage backed securities prior to the financial crisis being the most visible of them – affected significant numbers of institutional investors who have the incentives and resources to pursue securities claims on a class or individual basis, the increasing aggressiveness of government enforcement efforts by the SEC, the Department of Justice and even non-US authorities provides a significant boost to those civil claims, particularly as the authorities increasingly insist upon admissions or acknowledgements of facts or responsibility for violations. I do not believe the volume of class actions has increased in a long-term sense and think the various studies that track them demonstrate that fact; rather the post-crisis market has seen a return to a more normalised level of securities class actions that is greater than the pre-crisis lows but still below the peaks seen in the late 1990s and in the wake of the internet bubble.